SCCEI Seminar Series (Fall 2025)

Friday, October 17, 2025 | 12:00 pm -1:20 pm Pacific Time
Goldman Room E409, Encina Hall, 616 Jane Stanford Way

Due to room capacity limitations and high interest in this seminar, registration is now closed. 
 

Hamilton’s Nightmare: Financial Repression, Political Control, and the Rapid Rise of Local Debt in China

Hamilton’s Paradox highlights the moral hazard faced by local governments due to the implicit expectation of central government bailouts. This paper sets forth a framework where soft-budget constraints (SBC) intensify at the local levels when financial repression eliminates policing from external creditors, and local authorities can credibly threaten central authorities within stability. In such cases, central authorities, even if they could discipline local authorities, may repeatedly raise debt limits for local governments. Empirically, we demonstrate the benefits of financial repression to the central government by showing that rising government debt levels do not impact bond spreads, unlike in most developing countries. We then show that when local debts mature, Chinese local governments, backed by central approval, issue additional debt rather than impose austerity, regardless of outstanding debt levels. Second, by matching a comprehensive geospatial dataset of rainfalls and major floods with China’s provincial boundaries, we show that in those moments of heightened fiscal pressure escalating instability risks, the central government permits localities to borrow further for disaster relief and reconstruction.

Please register for the event to receive email updates and add it to your calendar. Lunch will be provided.

About the Speaker 
 

Victor Shih is an expert on the politics of Chinese banking policies, fiscal policies, and exchange rate, as well as the elite politics of China. He is the author of two books published by the Cambridge University Press, "Factions and Finance in China: Elite Conflict and Inflation" and "Coalitions of the Weak: Elite Politics in China from Mao’s Stratagem to the Rise of Xi."  He is also editor of "Economic Shocks and Authoritarian Stability: Duration, Institutions and Financial Conditions," published by the University of Michigan Press. Shih also has published widely in a number of journals, including The American Political Science Review, Comparative Political Studies, Journal of Politics, The China Quarterly, and Party Politics.

Shih is a professor of political science, director of the 21st Century China Center, and the Ho Miu Lam Chair in China and Pacific Relations. He is currently engaged in a study of the activities of the Chinese elite and of Chinese defense firms around the world. He is also maintaining a large database on biographical information of elites in China.

At GPS, Shih teaches courses including Financing the Chinese Miracle, Chinese Sources and Methods, Chinese Politics and Political Economy of Authoritarian Regimes.  

Prior to joining UC San Diego, Shih was a professor of political science at Northwestern University and former principal for The Carlyle Group.

Questions? Contact Xinmin Zhao at xinminzhao@stanford.edu